New U.K. provision requires more transparency in directors' severance pay

Is your company incorporated in the United Kingdom? Then no more hiding funds for you. When a director leaves a U.K. company, a new law requires the company to be more transparent with directors’ severance packages than ever before.

According to a new provision in U.K. law, companies will be forced to publish on their websites the details of any outgoing payments to the departing director. This includes both executive-level directors as well as non-executive level directors. According to lawmakers, this new law should force companies to be more up-front with shareholders rather than withholding information severance information until the company’s next annual report.

Under U.K. law, companies are already required to make a “regulatory information service” announcement upon a director’s departure, and this financial disclosure can be made within the very same announcement. If it is not, however, a company must also disclose the outgoing director’s pay “as reasonably practicable.” According to the Department for Business, Innovation & Skills (BIS), this announcement only needs to be made once.

Companies are required to disclose anything that can be considered a payment upon leaving the company, ranging from cash to company shares to other tangible benefits, such as continued company insurance plans.

For in-house counsel, this means a lot more preparation ahead of a director’s departure. While the BIS does allow for a reasonable amount of time to make the disclosure, especially in the case of a sudden departure, the new provision means business departments will likely be scrambling to have going-away packages finalized sooner rather than later.

On the legal side, this means taking the time to make sure that both releases and the compensation itself fully complies with company policy and the law. If shareholders challenge the payment package, the legal department is going to want to show it complied with the law in all ways possible, thus shielding the company from potential lawsuits.

Assistant Editor

Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...